hard hat boosting profits & sales

© HARD HAT Business Advice 2009 The reproduction or transmission of all or part of this document, whether by photocopying or storing in any medium by electronic means or otherwise, without the written permission of the owner, is prohibited. The commission of any unauthorised act in relation to this document may result in civil or criminal actions.

HARD HAT Business Advice

Boosting Sales and Profits

HARD HAT Business AdviceBoost Sales & Profits/Robert Harden/2009/v1.00

Purpose of today

Start of a journey … •setting out the steps you need to follow on that journey, and•sharing with you some HARD HAT expertise•giving you the edge you need to succeed in business

We are going to workshop together to build a personal Business Action Plan – giving you the edge you need for profitable growth!

This plan will be the template for your future success ...


Content for today: Your Business Action Plan

1. Business Aims and Aspirations

2. Business Description

3. Your Numbers

1. Overhead

2. Break-even point

3. Value added

4. Selling for Profit

5. Strategy and Planning

6. 90 Day Action Plan


Your objectives for today?

Why am I here?!


They will transform your business!

Improve sales and profitability with…

… the concepts of Critical Resource Limitation, True Overhead and Value Added which are changing thinking about Pricing and Business Models in every business where they are applied.

What’s In It For You?





3. Your Numbers

a) Overhead

b) Break-even point

c) Value added





Some big questions for today…

• What do you want from your business?

• Where are you now?

• Where do you want to be in 3 years time?

• How are you going to get there?

• What does your business do for its customers?

• What are your 5 priorities for the next 90 days?


Business Aims & Aspirations

Let’s get SMART-er!

What are you in business to achieve?

• A job?• Own boss?• Show ‘them’ you can do it?• Get rich?• A pension?



SMART goals are:

• Specific• Measurable• Agreed Upon• Realistic• Time Based


1. To increase my turnover from £50,000 to £200,000 within 3 years time2. To make a profit of at least 10% of my sales on an ongoing basis within the next year3. To take £40,000 a year in personal drawings within 3 years4. To position my company so that I can sell it for at least £500,000 within 5 years5. To build up a company that I can hand over to my family and retire at 556. To be able to work only 3 days a week within 2 years

Write your Aims and Aspirations in Part 1 of yourBusiness Action Plan!

Some ideas for SMART Business Aims and Aspirations






3. Your Numbers

a) Overhead

b) Break-even point

c) Value added





Imagine that, by chance, you’ve stepped into a lift with a potential customer …

… you’ve got just 16 seconds to describe your business…

… and to show you can do something of value for them.

Business Description: The Elevator Pitch

It comes in three parts…


1. The Introduction:

This is about me…

2. The Deliverables:

This is about what we do…

3. The “so what” line :

And this is what’s in it for you…




TWO things to think about….

• Your “Value Proposition” (or USP)

• Features vs Benefits


Business Description: Features versus benefits

• People buy benefits not features

• “People don’t buy drills, they buy holes” [Theodore Levitt, Marketing Professor, Harvard Business School]

• Ask the question “which means that..” until you get to the true BENEFIT.


Business Description: The Elevator Pitch - Workshop

Discuss your business and share your ideas about your Value Proposition.

Write it down…

Craft this into an elevator pitch with:• An introduction• The deliverable• The ‘so what?’ line


Business Description: The Elevator Pitch - Workshop

YOUR CHANCE TO PITCH…!!

LIFT

GROUND FLOOR

FIRST FLOOR


Business Description: Business Action Plan Part 2

In heading: write your name, company and other items as requested

In Part 2 - Business Description summarise:

• Your business heritageExample: “A market gardening firm set up in 1953 by my father & now run by my family”

• Your business deliverables – from your elevator pitch and ….

• The ‘so what?’ line





3. Your Numbers

a) Overhead

b) Break-even point

c) Value added





Financial Performance

It’s OK to be ‘uneasy’ with finance, but…

… “Finance without strategy is just numbers, and strategy without numbers is just dreaming” [E Faber, CFO, Danone]

So, you need to do some SIMPLE numbers to take stock of where your business is, and outline where you want to take it.

Don’t Panic!!!!





3. Your Numbers

a) Overhead

b) Break-even point

c) Value added

These 3 numbers link Accounts, Sales and Operations to make ‘Profit Builder’


Profit Builder: Works For Every Kind of Business

• £27m Audio & Video Co. lost £3m – now making £500k on £18m

• £10m Building Services firm losing £120k/month for 15 months – turned in 120 DAYS, made £800K the next year, and STILL making profits

• Training firm operating at break-even – now heading for £340k @ 50% margin

And for businesses like yours it’s even more effective...

How will this impact on your overall strategy?


A ‘different’ way of looking at some of your numbers.

The trick is in the way that these three concepts are linked together:

Profit Builder – What Is It ?!

• Critical Resource Limitation (CRL)

• True Overhead (TOh)

• Value Added (per CRL)


Profit Builder: What is Critical Resource Limitation?

Let’s look at some examples:

• The Critical Resource Limitation is the brake on your profitable growth.

• It’s that one thing that, if everything else is working, you find hardest to get more of.


Profit Builder: What is the Critical Resource Limitation for…?


Come on The Hammers!!



Is it the same for a fine dining restaurant?

A fast food outlet?



A Hair Dresser?



Machine shop?

Supermarkets? (in/out of town?)

Antique clocks business?

Professional services?



What would put the brakes on your business?

Discuss...



To use our new insight into the Critical Resource Limitation we need to establish the True Overhead of operating the business…

…NOT those used in a traditional profit and loss account.

Profit Builder: What is the True Overhead?


BUILDING COMPANY Traditional P&L

Sales £300,000

Materials £180,000

Labour £45,000

Gross Profit £75,000 25%

Overheads:

Staff Wages £25,000

Other Costs £50,000

Total overheads £75,000

Profit £0

Profit Builder: Example – True Overhead

£45,000

£50,000

£120,000

£0

Labour

“TRUE OVERHEAD”

Operating P&L

£300,000

£180,000

£120,000 40%

£25,000


If Break-Even turnover is >90% of actual = then very high probability of failure

If Break-Even turnover is between 80 – 90% of actual then probable survival – but difficult to grow

If Break-Even turnover is <80% of actual then survival is likely and self-funded growth is possible

Profit Builder: Added Value - Some Vital Statistics…

Source = Warnes B. “Genghis Khan Guide to Business”


30% of businesses fail within 3 years – scary but true!

Profit Builder: Added Value - Some Scary Statistics…

Source = Small Business Service Analytical unit (2006), Survival rates of VAT registered businesses, 1994-2003 key results www.sbs.gov.uk/survival (Feb)

Only 92% of all new businesses that register for VAT survive their first year!

HARD HAT and Business Link are on a mission…


How much is needed to pay for your true overheads (including what you need to pay yourself!) so you don’t lose money?

(This is the Break-Even Value Added)

Profit Builder: Break-Even and Target Value Added

How much money should you be making?

How much is reasonable for you to want to make?

(This is the Target Value Added)


Break Even Value Addedper Hour:

True Overhead of £120,000 divided by 3,000 hours

= £40/Hr

£45,000 of labour represents 3,000 Hrs of saleable work

Target Value Addedper Hour:

True Overhead of £120,000 divided by 3,000 hours = £40/Hr x 1.25

(So that break-even turnover = 80% of actual turnover)

= £50/Hr

In this example from a building company:

This adds £30,000 to the bottom line!

Profit Builder: Break-Even and Target Value Added


Job A Job B

Sales £1,000 Sales £1,000

Materials £600 Materials £800

Gross Profit £400 40% Gross Profit £200 20%

Profit Builder: Identifying Maximal Value Adding Products & Customers

Good Job or Bad Job?

Labour required is 20Hrs

So Value Added/Hr = £20!

(3,000 x £20 = £60k )

Labour required is only 4Hrs

So Value Added/Hr = £50

(3,000 x £50 = £150k )


The key to increasing profitability is:NOT Gross Margin %

But

Maximising the Value Added for the Critical Resource Limitation!

Profit Builder – The Key Point…

If You Only Take AwayOne Thing From Today:


Identify those products and customers that produce most Value Added and focus on them

To understand and use Dynamic Pricing tactics...

Profit Builder: Dynamic Pricing


£50.00

£60.00

£40.00

Is Pricing Fixed?

£70.00It’s all about designing a mix of prices!

The Keys to Profit Builder: Dynamic Pricing


Profit Builder: Dynamic Pricing Plan

Trade Value Resources Used Av.VA/HR

Gross Profit

Platinum 10% 300 >£60 £21,000

Gold 20% 600 £60 £36,000

Silver 40% 1,200 £50 £60,000

Bronze 20% 600 £40 £24,000

Lead 10% 300 <£40 £9,000

Total £150,000


Old St. Andrews Whisky...

Added Value c £1.00 per Litre

TOTAL: £60,000

Added Value c £15.00 per Litre

TOTAL £900,000Where would YOU

focus….?!


CRITICAL RESOURCELIMITATION

60,000 litres of whisky


Profit Builder: The Outcome for Old St Andrews…

The actual results after 6 months customer interaction:

31-Dec-08 31-Dec-07Sales 501,045£ 350,192£

Cost of Sales 289,518£ 258,147£ Gross Profit 211,527£ 42.2% 92,045£ 26.3%

Overheads 161,259£ 189,178£ Operating Profit 50,268£ 10.0% 97,133-£ -27.7%

Average VA/L 3.53£ 1.53£

Break-Even Point 381,975£ 719,742£ Break-Even VA/L 2.69£ 3.15£

BEP as % of Sales 76.2% 205.5%


1. Establish the TRUE overhead

2. Determine break-even

3. Identify the Critical Resource Limitation (CRL)

4. Target value added/CRL

5. Identify maximal value adding products & customers

6. Optimise customer/product combinations using dynamic pricing tactics

Profit Builder Prescription:


All of which creates an instinctive feel to runningthe business, and…

And the Point is…?

Understanding both your Critical Resource Limitation and Value Added means you can…

• Design the business to operate within its capacity (the Critical Resource Limitation)

• Simplify price setting and tracking by removing labour from the pricing calculation (put it in overheads)

• Maximise profitability with appropriate responses to market conditions


...it makes you more money!!

So what have you got to do to get at it?

You guessed!

Sell More…

And the Point is…?





3. Your Numbers

a) Overhead

b) Break-even point

c) Value added





Sales Builder: Existing Customers

The first key to selling more is to exploit your existing customer base as much as you can (because it is easiest) …

1. Identify the most profitable customers you have using the value added model• Can you sell them a meal deal (complimentary product)?• Try and super-size them (more of the same)?• Add a different product sale (Apple pie!)• Get them to buy again sooner?

2. Think about lifetime customer value:• Find out why customers leave• What can you fix?• Can you create exit barriers?


Sales Builder: Finding New Customers

The second (and more important!) key to selling more is finding new customers is by exploiting as many routes to market as you can…

Most only use one or two

You need at least 6

Preferably 8 or more


Sales Builder: Routes To Market

Consider these routes to market for your business…

YOU CAN INCREASE THE EFFECTIVENESS OF EACH OF THESE BY FOLLOWING UP WITH ONE OF THE OTHERS

• Networking• Web site• Emails• Telesales• Referrals• Co-op marketing• Postal campaigns

• Advertisements (direct response)

• Trade fairs• PR (free)• Public speaking• Joint ventures• Affiliates


Sales Builder: Test and Measure all your marketing!

Check out Boosting Sales!


Sales Builder: The Sales Funnel

Clouds of opportunity

Fog of suspects

Rain of unqualified prospects

Qualified prospects

Quoted prospects

Customers


Sales Builder: Example Sales Funnel

Opportunity Pipeline

18/06/2009

25 Identified Opportunities

12 First meetings booked

10 Needs Assessment

5 Quoted Proposals

8 Signed Contracts


Bringing it all together – the Business Chassis

Prospects x

Conversion Rate =

Customers x

Freq of Purchase x

Av Sales Value =

Turnover x

Margin =

Gross Profit -

Overheads =

Profit

2,000

50%

1,000

8

£12.00

£96,000

30%

£28,800

£18,000

£10,800

2,200

55%

1,210

9

£13.20

£143,748

33%

£47,437

£16,200

£31,237

Developed by Hard Hat Business Advice from “The Business Chassis” by Bradley J Sugars





3. Your Numbers

a) Overhead

b) Break-even point

c) Value added





Recap – what we have covered so far…

So we have talked about…

• Aims, aspirations & financial goals• What your business does• Improving profitability• Increasing sales to existing customers• Adding new customers

What does this mean for achieving youraims and aspirations for your business?


Key Issues & Opportunities

What is your Overall Strategy?

Then look at it from four key

perspectives:

a. Customers & Markets

b. Operations and Productivity

c. People & Skills

d. Finance & Systems


Go back to your aims and aspirations.

Create a forecast in Part 3

How you will go about achieving those aims and aspirations?

For example:

Key Issues & Opportunities: Strategy & Planning

• Sell more to selected existing customers

• Attract new more profitable customers

• Will lead to improved profitability and less reliance on existing large customers -> we can achieve our goals within our existing capacity


Key Issues & Opportunities: Customers & Markets

MARKET

MEDIA MESSAGE

• Leverage existing customers?

• Segment your market? (size, industry, location?)

• Which markets/products are most attractive?

• What are your competitors doing?

• Which routes will you be using?

• How will you to test and measure?

• How much prospecting do you need to do? (remember the sales funnel)

• How will you track prospects through your sales process?

• What is your USP/”unique perceived benefit”?

• How will you highlight benefits?

• How will you get testimonials?

• How will you ensure your message is clear and consistent with your brand?


Key Issues & Opportunities: Operations & Productivity

Operations andProductivity

EfficiencyCritical ResourceLimitation

Outsourcing

• What is your CRL?

• How does it impact operations?

• How can you release CLR?

• Getting more out of each unit?

• Additional income streams?

• Possible tasks to outsource? (identify non critical tasks)

• Cost versus benefit?

• Risks? (financial, operational, reputational)

• How will interfaces work (internal, customer)?

• Documented procedures?

• Systemise processes?

• Workflow and layout?

• Templates/pro-formas?

• Disaster recovery?


Key Issues & Opportunities: People & Skills

People andSkills

ManagingRecruiting

Developing

• Impact of strategy – need more people?

• Get the right ATTITUDE. Teach skills.

• Proper role profile and person spec.

• Can you afford mistakes?

• Do you have to get anyoneoff the bus?

• Is your appraisal/review process fit for purpose?

• What commitment do you give to training your people? (training budget?)

• Do you properly assess training needs?

• How do you enrich people’s jobs?

• Do you invest in your people? IiP?

• How do you set the right example?

• Do your people know what you expect? (job descs?)

• Do you communicate targets, values?

• Do you celebrate success?

• Is your reward system ok?


Key Issues & Opportunities: Finance & Systems

Finance

• Impact of your strategy on cash flow?

• Are you making best use of internal and external financing? (“Cash Builder”)

• What operational numbers do you need to see?– Break even and target VA/CLR

– Critical resource loading (capacity)

– Dynamic pricing model & tracking

• What reports do you need? (new KPIs, dashboard/non-financial, timing…)

• What reports do your people need to hit their numbers?

Systems

• Impact of strategy on IT/systems?

• Are your financial systems adequate?

• Do you need to invest in new reporting capability?

• Do your systems adequately support your marketing efforts (eg CRM?)

• Do your systems hinder your communication? (email? telecoms?)

• Does your website need beefing up? (transaction capability? Link to CRM? Order processing?)





3. Your Numbers

a) Overhead

b) Break-even point

c) Value added





Actions to be Taken in next 90 days

Commit to 5 Goals in 90 days

• What are the five things you can tackle now that in 90 days will affect:– Cash

– Profit – increase profit by…

– Sales – increase sales turnover by…

– Team effectiveness

– Your time effectiveness

• Make them SMART:– Specific

– Measurable

– Agreed Upon

– Realistic

– Time Based


Have we covered the things you wanted to get out of this workshop today?

Any questions?

Your Objectives Revisited…….


Wrap Up

• Complete your business action plan

• Fill out evaluation sheet

• Complete a referral card

• Collect your copy of “Boosting Sales”

© HARD HAT Business Advice 2009 The reproduction or transmission of all or part of this document, whether by photocopying or storing in any medium by electronic means or otherwise, without the written permission of the owner, is prohibited. The commission of any unauthorised act in relation to this document may result in civil or criminal actions.

HARD HAT Business Advice

HARD HAT Business Advice: 0870 066 2940

Email: [email protected]

Web: www.hardhatbusiness.com

Thank you and good luck!!